Uncertainty and cross-sectional stock returns: Evidence from China

Bruno Deschamps; Tianlun Fei; Ying Jiang; Xiaoquan Liu

doi:10.1016/j.jbankfin.2024.107374

Uncertainty and cross-sectional stock returns: Evidence from China

Bruno Deschamps, Tianlun Fei, Ying Jiang, Xiaoquan Liu

Department of Finance, Accounting and Economics

Research output: Journal Publication › Article › peer-review

Abstract

We study the impact of macroeconomic and financial uncertainties on cross-sectional returns in the Chinese stock market. We find that stocks with a lower macroeconomic uncertainty beta generate higher excess returns, implying that macroeconomic uncertainty commands a negative risk premium. Meanwhile, the exposure to financial uncertainty is not priced in stock returns. Unlike financial uncertainty, macroeconomic uncertainty is a state variable that predicts a deterioration in economic activity, suggesting that investors require a premium for holding stocks that correlate negatively with it.

Original language	English
Article number	107374
Journal	Journal of Banking and Finance
Volume	171
DOIs	https://doi.org/10.1016/j.jbankfin.2024.107374
Publication status	Published - Feb 2025

Keywords

Macroeconomic uncertainty
Asset pricing
Risk factors
Return decomposition

ASJC Scopus subject areas

Finance
Economics and Econometrics

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10.1016/j.jbankfin.2024.107374

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title = "Uncertainty and cross-sectional stock returns: Evidence from China",

abstract = "We study the impact of macroeconomic and financial uncertainties on cross-sectional returns in the Chinese stock market. We find that stocks with a lower macroeconomic uncertainty beta generate higher excess returns, implying that macroeconomic uncertainty commands a negative risk premium. Meanwhile, the exposure to financial uncertainty is not priced in stock returns. Unlike financial uncertainty, macroeconomic uncertainty is a state variable that predicts a deterioration in economic activity, suggesting that investors require a premium for holding stocks that correlate negatively with it.",

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AU - Jiang, Ying

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AB - We study the impact of macroeconomic and financial uncertainties on cross-sectional returns in the Chinese stock market. We find that stocks with a lower macroeconomic uncertainty beta generate higher excess returns, implying that macroeconomic uncertainty commands a negative risk premium. Meanwhile, the exposure to financial uncertainty is not priced in stock returns. Unlike financial uncertainty, macroeconomic uncertainty is a state variable that predicts a deterioration in economic activity, suggesting that investors require a premium for holding stocks that correlate negatively with it.

KW - Macroeconomic uncertainty

KW - Asset pricing

KW - Risk factors

KW - Return decomposition

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Uncertainty and cross-sectional stock returns: Evidence from China

Abstract

Keywords

ASJC Scopus subject areas

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